Martin Gerstel’s back in business, this time in Israel

Entrepreneur Martin Gerstel says living in Jerusalem is central to his commitment to being in Israel.When Martin Gerstel moved to Israel in 1993, he looked forward to a quiet early retirement. He had left his position as chief executive of …

Entrepreneur Martin Gerstel says living in Jerusalem is central to his commitment to being in Israel.When Martin Gerstel moved to Israel in 1993, he looked forward to a quiet early retirement. He had left his position as chief executive of Alza, a successful U.S. pharmaceutical company, which he had built up over 25 years of hard work, and he felt burnt-out. His plan was never to work again, except for perhaps some teaching and consulting, and to enjoy living with his wife in her native Jerusalem.

Nine years later, at 60, Gerstel is working 16-hour days as chairman of two Israeli biotech companies, which Gerstel considers “two of the absolute gems in Israel” – Nasdaq-traded Compugen and the startup Itamar Medical. “I found out I was not burnt-out, I was just bored,” he said.

Unexpected twists of fate are a recurrent theme in a life that began in humble circumstances in Connecticut. After his father’s death, the young Martin grew up in poverty, and although he was a good student, he didn’t dare dream of college. As it happened, one of the odd jobs he did to support himself was mowing the lawn for the local superintendent of schools.

“When he heard I was not thinking of college, he was shocked,” Gerstel said. The superintendent, who had a degree from Yale, called the university and arranged for Gerstel to apply without paying the $25 application fee. Gerstel was accepted with a full chemistry scholarship, becoming the first person from his high school, only 30 miles away, to attend the venerable institution in decades.

After graduating with an engineering degree, Gerstel went to work for a corporation in the Midwest, which subsequently sent him to do an MBA at Stanford, where he graduated first in his class in 1968. At the time, “Business Week” was doing a series of profiles of promising new MBAs and put Gerstel on the cover of the magazine. “Here I am graduating from business school, I don’t have a job, don’t know what I’m going to do, and I’m on the cover of ‘Business Week.’ Most people hope to be in ‘Business Week’ at the end of their careers.”

The next fateful encounter was with Alex Zaffaroni, then president of Syntax Corp., the company that invented the birth control pill. A scientist himself, Zaffaroni had an idea for a new company and was seeking a partner who would see to the business side of it. Gerstel joined the new company, Alza, in Palo Alto, Calif., as financial vice president. The innovation was controlled drug delivery. “Up until then the only ways to take medicine were to take a pill three times a day, injection or intravenous in the hospital,” Gerstel said. “(Zaffaroni’s) idea was slow release. People thought he was crazy.”

Research began in 1969 and the first product was to be a novel contraceptive, a hormone-releasing IUD. But this first product created a conflict: Syntex owned one-third of the company, which was now planning a competing product. To effect a separation, each of Syntex’s 20,000 shareholders was given a share of Alza. Thus, Alza was owned by shareholders from its inception, skirting the rule then in force that a company could not go public before it became profitable.

“That opened the floodgates to raising money, which is the basis of high-tech industry,” Gerstel said. “Because of this, the whole high-tech industry became possible. Once we were out there and were public, there was no way the law could be interpreted the same way anymore. We had 20,000 shareholders without a prayer of making money, and we didn’t even have a product. Because there was so much excitement about Syntex, everyone wanted to buy Alza stock. We had very high market value for a while. Just out of graduate school I had stock, so I was a millionaire on paper while I still had debts to graduate school.”

“I learned so much from that experience,” he said. “I learned that in the world of finance you really can be creative. Just because they say, “This is how things are done,” you don’t have to do things that way.”

Innovation and creativity were certainly required to keep Alza afloat: it was 15 years before the company made its first profit. In the interim, Alza was close to bankruptcy twice and once was actually sold to Ciba Gigy, the Swiss pharmaceutical giant, and then spun out again five years later. But things finally turned around in 1984 with the transdermal nitroglycerine patch, which sells strongly to this day. In 2001, Alza was sold to Johnson & Johnson for $11 billion.

In his quest for Alza’s funding, Gerstel once entered serious negotiations with the Shah of Iran to help establish Iran as the center for drug delivery in the eastern world. As it was, the deal didn’t work out, but the experience was to change Gerstel’s life. During his stay, he took advantage of the direct flights that existed at the time to Tel Aviv, and went on his first visit to Israel. “It was an amazing experience,” he said. “I never really identified with my Jewish heritage. I would say, ‘My parents were Jewish,’ but I didn’t really think of myself as a Jewish person. But when I came to Israel, almost the minute my feet touched the ground, I had this enormous emotional reaction to being in this country, which I couldn’t understand.”

On his next visit he met his future wife, Shoshana, a physical therapist at Hadassah Medical Organization. They married in Jerusalem and Shoshana joined her new husband in California, never giving up her desire to move back to Israel.

By the time Gerstel decided to leave Alza, it was worth nearly $3 billion. “Here was a company that had struggled for 20 years and almost gone bankrupt twice and was finally worth billions. I was the CEO and could do anything I wanted. It was the perfect job. Nobody ever quits a job like that in their early 50s. People assumed I was deathly ill.” The couple retired to Jerusalem, where they bought a big old house and remodeled it. Gerstel offered to teach a course in economics and business for scientists at the Weizmann Institute of Science. Other than that, he thought he would do some casual consulting, free of charge, and relax.

But the Israelis had other plans for him. “I’m a unique character in Israel,” Gerstel said. “I’m probably the only former CEO of a U.S. pharmaceutical company living in Israel. There are so many startup biotech companies here and it’s a small country, people talk, so suddenly everyone’s showing up on my doorstep.”

In the course of consulting nearly every biotech startup in the country, Gerstel came across the two that he chairs. Graduates of the Israeli army’s Talpiot research program founded Tel Aviv-based Compugen, which makes bioinformatic systems for analyzing biological data and discovering drugs, in 1993. Mathematicians and physicists trained in military areas such as voice processing, sonar, radar and avionics applied their skills to biology by creating a computer that could process biological data 1,000 times faster than a normal computer.

Gerstel believes the kind of work being done by Compugen signals the transition of life sciences from experimental to predictive sciences – a shift that will change the face of medicine as we know it. Besides computer systems, Compugen’s other business is drug discovery, on which it can build a future pharmaceutical company. “Israel could and should be the center of this kind of research in the world,” Gerstel said. “We have a subsidiary in the U.S., but we found we have to bring people from Israel. About half our R&D team comes from the military elite groups. The rest are biologists, which we find in the U.S.”

Gerstel’s other company is Itamar Medical, based in the historic seaport of Ceasarea. The company, of which Gerstel is co-founder and co-chairman, uses a finger probe to measure changes in the body’s autonomic nervous system – a marker that could have a broad range of applications. The company’s first product, just coming out, will help diagnose sleep apnea at home by measuring changes in blood flow in the arteries during sleep. As they developed the sleep apnea probe, scientists at Itamar Medical soon realized that the signal they were measuring has far greater implications. The discovery that periphery artery contractions reflect changes in the autonomic nervous system led to the development of a second product, already approved by the U.S. Food and Drug Administration, which will be used along with a stress test to enhance diagnostic accuracy of coronary artery disease by detecting myocardial ischemia.

“In my entire career in the medical high-tech world – my own and all the companies I’ve ever known about – this is unique,” says Gerstel of Itamar Medical’s work. When Gerstel first showed the probe for coronary artery disease to Medtronics, makers of pacemakers, he said, “Their immediate reaction was if something this simple could measure ischemia, someone would have discovered it in the past.” But tests at Medtronics validated the finding. “Medtronics said they still don’t believe it, but it is too intriguing to ignore, so they started funding the company in 1997. Now they have invested $20 million in Itamar Medical.”

The Gerstels are deeply committed to philanthropic causes, for which they host events at their home several times a year. Among the organizations they support are the Jerusalem Foundation, the Weizmann Institute, Hadassah, Yad Sarah, the Israel Museum and the Israel Arts and Science Academy.

Their home is at the epicenter of the terrorist attacks over the past year and a half, but Gerstel said he walks around the city freely, not thinking about the danger. “It is part of living in Israel and you have to accept it,” he said. “I can’t understand why any American Jew would ever move to Israel and not live in Jerusalem.”